Lululemon Slips as Rivals Rally: 3 Stocks to Watch
Earnings season was a surprising success for a large portion of the S&P 500, as companies demonstrated unexpected resilience despite tariff wars, worrisome economic data, and declining sentiment. Strong reports have fueled major indices to new all-time highs, but not every industry leader is gaining ground.
Lululemon Athletica Inc. (NASDAQ: LULU) made the type of headlines investors don't want to see earlier this month, raising the alarm on EPS estimates and slashing guidance projections for the second half of 2025. Is this a sign of things to come in an industry heavily battered by tariffs, or is Lululemon starting to feel the heat from competitors?
Considering the success of some of its smaller rivals, the latter option might be the case.
Lululemon’s Weakness Opens a Lane For Competitors
High-end athletic apparel maker Lululemon matched EPS projections and beat revenue estimates by a hair for fiscal Q1 2025. Still, comparable sales growth was only 1% and the conference call and forward guidance painted a bleak picture. LULU cut next quarter EPS guidance from $3.31 per share to a range of $2.85 to $2.90, and lowered revenue expectations from $2.6 billion to $2.5 billion.
Overseas sourcing from China and Vietnam weighed heavily on the numbers, and executives project that tariffs could reduce the company’s gross margins by over 100 basis points.
Following the release, investment analysts lowered their price targets so fast it would make contestants on The Price Is Right blush. Of the 31 stock analysts with LULU coverage we’re tracking at MarketBeat, 15 lowered their price targets in the wake of the report. The heaviest cuts came from JPMorgan Chase (from $389 to $303), KeyCorp (from $400 to $350), and Morgan Stanley (from $346 to $280).
Jim Cramer expressed exasperation over the stock during a recent Lightning Round segment, commenting that despite a 25% decline over the last month, the bottom may not have been reached for LULU shares.
3 Stocks Gaining on Lululemon
It’s not all doom and gloom in the apparel industry. Some companies are actually raising guidance and expertly navigating the tariff environment. Here are three stocks in the apparel and footwear sector with a better outlook than Lululemon.
Amer Sports: High-End Brands Leading Explosive Growth
Amer Sports Inc. (NYSE: AS) is a Finnish sports equipment and apparel company behind popular brands such as Arc’teryx, Louisville Slugger, Salomon, and Peak Performance. The premium Arc’teryx brand has been a significant success, driving Amer Sports’ technical apparel segment to 28% year-over-year (YOY) growth. The Salomon footwear-led Outdoor Performance segment also saw 25% YOY growth.
AS stock trades at 82 times forward earnings, which is a pricey valuation for a company with thin margins and geopolitical headwinds from tariffs. But the company keeps blowing away analyst estimates, sending price targets higher and higher with each earnings release.
Amer Sports’ Q1 2025 report saw EPS of $0.27, tripling the number it posted in the same quarter last year. The $1.47 billion revenue figure also beat expectations and represented YOY growth of more than 24%.
The company raised its EPS guidance from a range of $0.64 to $0.69 per share to $0.67 to $0.72 per share, as it expects minimal tariff impact for the remainder of the year. And the upgrades keep on coming: KGI Securities gave the stock an Outperform rating and $44.30 price target on June 25.
Urban Outfitters: Superior Tariff Strategy
Like most companies in the footwear and apparel industry, Urban Outfitters Inc. (NASDAQ: URBN) and its subsidiaries, Anthropologie and Free People, are holding their breath regarding President Trump’s aggressive tariff regime. However, unlike Lululemon, Urban Outfitters is better positioned to manage its margins and maintain its earnings growth track.
Lululemon anticipates a margin hit of at least 110 basis points under a 30% tariff on China and a 10% universal tariff policy. However, during their fiscal year Q1 2026 report on May 21, Urban Outfitters executives announced that they anticipate only a 20-basis-point drop in gross margins due to tariffs, which will be more than offset by gains of 50-100 basis points in other areas.
Q1 sales reached a record $1.3 billion, and the stock received two additional upgrades this month from Jefferies Financial Group (from Underperform to Hold) and Robert Baird (from Hold to Outperform).
On Holdings: Innovations Justifying a High Valuation
On Holdings AG (NYSE: ONON) trades at 77 times forward earnings, but its innovative products and consistent growth give it a leg up over Lululemon. The company’s CloudTec cushioning is a proprietary product designed to make running more effortless, with the tagline claiming that runners will feel like they’re running on a cloud. Innovation isn’t limited to consumer products either.
During the 2024 Olympics, the company unveiled the LightSpray system, which can manufacture a complete shoe in less than three minutes.
On Holdings is also an earnings season winner, beating revenue projections by 18% in the most recent quarter and raising full-year guidance. Despite the earnings growth, the stock has declined by more than 10% over the last month, but this pullback is likely to be short-lived and could represent a quality entry point for new investors.
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